Bottom Line: Good news awaited

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The Independent Online
SHOPRITE yesterday demonstrated the truth of an old City adage. After a piece of disastrous news from a company it is sensible to wait for some good news before risking money on the shares.

It is possible that the collapse of the sale and leaseback deal was merely an unfortunate piece of timing which had nothing to do with the poor results announced last month. Far more likely, however, is that the two prospective buyers worked out that the returns from Shoprite's stores will be lower than anticipated, and the covenant less secure, so that a 9 per cent yield was too low to justify the increased risk.

The problem for Shoprite is that other buyers are likely to think the same, leaving it to accept either lower prices - and reduced property profits - or higher gearing. The latter would force it to slow its new openings.

But, given the problems it is suffering with the existing chain, that may be no bad thing.

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